Investing Cash Flow for Growth or Funding Waste?
As a business leader – are you investing your cash flow for growth, or are you funding waste? In this article, you will learn how to measure if you are investing cash to grow your business, or merely funding wasteful activities. In fact, tolerating poor business practices is a decision that is funded by your cash flow.
Decisions are funded by cash flow
In essence, as a business owner or executive, your job is to grow the overall value of your business. This is done by using a limited amount of cash. Cash is sourced from investors, banks and trading, or a combination of these sources.
Importantly, every business decision you make is funded by one of these cash sources. And each decision is either creating, or destroying, value. Therefore, you are either investing your cash flow for growth, or funding waste.
Watch this insightful, 3-minute video on this topic:
Measuring if you are investing for growth or funding waste
Of course, the big question is how do you measure if you are investing for growth or funding waste?
A very useful metric is called ‘Marginal Cash Flow’:
Compare the cash generated through trading (as measured by Gross Profit % (GP%)), to the cash required for trading (as measured by Working Capital %).
Marginal Cash Flow Formula
Compare GP% (Gross Profit / Revenue) with WC% (Working Capital / Revenue)
When your …
GP% > WC% = Investing in Growth
GP% < WC% = Wasting cash on poor practices
In particular, with this simple metric, you can evaluate if you are investing for growth or funding waste, and identify what you need to change in your cash flow practices.
Consider these questions to determine if you are investing for growth or funding waste
Furthermore, business leaders should consider these questions:
- To what extent is your business funding itself or needing to borrow cash from the bank?
- How comfortable are your bankers that you can pay them back in time?
- Which poor practices are you tolerating that’s wasting your cash?
- Lastly, what is your Marginal Cash Flow?
#bestpractical Solution to ensure you are investing cash flow for growth
If you are battling with your cash flow and feeling stuck, connect with Barend Cronjé from CoLAB HERE.
CoLAB’s #bestpractical solutions work, because it’s expert help, support, accountability and a #bestpractical solution designed specifically for you and your business.
Go ahead, book a 20-minute, breakthrough call with CoLAB HERE.
“I want to understand your situation, and help you create the best version of your business”, says Barend Cronjé, CoLAB CEO.
We are looking forward to helping you invest your cash into growing your business and removing practices that waste cash.
At CoLAB we are easy to deal with, very approachable, and we are passionate about what we do!
Don’t delay, book that call HERE.